Still confused if Bitcoin is "anonymous" or just "private"? Answers to all your questions are here.
With Bitcoin climbing cryptocurrency Olympus higher and higher, I hear explanations like these everywhere in town: from bartenders to children, from musicians to policemen. In addition to being fundamentally wrong, such explanations raise one of the most important security questions — what is the difference between privacy and anonymity. How does Bitcoin find itself in this field?
In this article, I will share some thoughts on the matter, and teach you how to become a silent Bitcoin Ninja without breaking a law.
Lesson 1: What anonymity is?
What's the best way for a Bitcoin Ninja to kill a bitcoin enthusiast?
Just tell him Bitcoin is absolutely anonymous and watch him ROFL to his death. If you also think ignorance isn't the best weapon for a true ninja, you may need to know more about what anonymity really is.
Anonymity can be compared with thimblerig — we all know that there's a pea in one of the thimbles, but no one knows which one. In finance, anonymity means the bank doesn't collect the data from its clients, doesn't document transactions and allows anonymous deposits/withdrawals. It seems to be legit if you take explanations presented in the beginning of this article for granted, but in fact is a crime and a violation of all AML requirements.
The truly anonymous cryptocurrency or a financial system would require such a significant amount of trust that has never existed between humans. Remember, anonymity is a crime!
Lesson 2: What privacy is?
If something is private, it doesn't necessary mean it's anonymous.
Everyone knows banks are processing clients' data, but only the least know they do it differently. Compare two options: private Swiss bank and an unknown service on the internet - which do you think is more likely to spread your personal data through public?
Of course, with Swiss bank you're assured that nothing ever happens with your data. Moreover, you also know there will be no leaks on your transactions destinations, sums or recipients. You have your own private manager, who's in control of all operations and data, while the unknown service may disappear the same way it has appeared.
Privacy in finances means all your moves fall under the record, but only the law enforcement can retrieve.
Lesson 3: How does bitcoin stack with privacy and anonymity
Let's get back to the ninja killing a bitcoin enthusiast. How does the idea of anonymous bitcoin funny?
First of all, all bitcoin transactions are recorded for life. This huge log is called the ledger and it recorded in the blockchain, wallet identification, other metadata and the transaction sum. All transactions are available for the public. If you followed the article, this can define it as a private currency. The system is similar to Swiss bank manager - it knows all your transactions, but not willing to give your identity and personal details without a proper request.
The second, it also inherits traits of the true anonymity, which is the toughness of the recognition process. If you didn't tie your identity to the wallet anyhow, this currency becomes more anonymous and less private. But even in this case it doesn't become 100% anonymous as your payments can be tracked.
Considering all said above, Bitcoin is now in the middle of the road combining some features of private banking system with limited internet-style anonymity, but tending to be more a private solution.
Bitcoin ninja bushido
We at Cryptopay consider anonymity as the way to improve the security of your money, not as a camouflage for crimes or suspicious activities. So, in order to be an invincible ninja and trick your enemies, you should follow these rules:
- Rotate bitcoin wallet address
- Improve bitcoin wallet security
- Use reliable account providers
- If possible, do not tie your identity to the wallet (e.g by deposits, withdrawals, )
Decentralised, but not anonymous
Now you know how the privacy is different from anonymity in the cryptocurrency world and where's the place for a bitcoin in this ecosystem. Remember, when you buy bitcoins via your debit card, you automatically tie your identity to the deal.
So, when you face an explanation of a blockchain similar to these I gave in the beginning of the article, just show them this article and watch their eyebrows go up.